Demand for Special Category Status

Source: Indian Express
GS II: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein

Overview

1. News in Brief
2. What is Special Category Status?
3. Way Forward

Why in the News?

Demand for ‘special category status’ for Andhra Pradesh and Bihar is likely to get louder.

News in Brief

• It is often made for political purposes.
• Studies have shown that the net benefits a state would get through Special Category Status can be easily achieved through full and proper utilisation of funds under sanctioned projects and tapping existing opportunities.

What is Special Category Status?

Special Category Status (SCS) in India is a designation conferred upon certain states by the central government based on specific criteria.

History of Special Category Status

• The Fourth Five-Year Plan, issued by the Planning Commission in 1969, introduced the idea of special category status.
• The National Development Council or NDC, served as a tool for positive intervention, providing more plan help to a select few states that were disadvantaged by geography or socioeconomic conditions.
• Its main goal was to achieve balanced regional development throughout the nation.
• At first, this status was granted to just three states:
  • Jammu and Kashmir
  • Assam
  • Nagaland.
• Later, special category status was granted to Uttarakhand, Himachal Pradesh, and all of the northeastern states.
• The NDC reserved 30% of the money for the special category states (SCS).
• Used the Gadgil formula to offer plan support to the states, giving more weightage to population and economic disadvantage.
• The Finance Commission (FC) also recognised J&K, Assam and Nagaland as SCS in 1969.
• More importantly, the Commission incorporated the essence of the formula in meeting the budgetary deficits of these states as well as in designing the criteria for devolution of taxes.
• This is reflected in higher per capita transfers to the SCS since the Fifth FC in 1969.
• The Centre pays 90 per cent to SCS in centrally-sponsored schemes as grants and the rest 10 per cent as loans, as against 60 or 75 per cent grants in the case of other states.

Let’s delve into the details

• SCS Classification
  • SCS sets certain states apart in terms of financial assistance, resource allocation, and other benefits.
  • These states face geographical and socio-economic disadvantages, and the status aims to amplify their growth.
• Criteria for SCS
  • The criteria for granting SCS to a state in India are carefully considered.
  • They encompass various factors that highlight the challenges faced by these states.
  • States meeting specific requirements, such as hilly and challenging terrain, strategic border locations, low per capita income, low population density, sizable tribal populations, economic and infrastructure backwardness, and unviable state finances, are eligible for SCS.
• States with SCS
  • Currently, 11 Indian states have the designation of Special Category States, while 5 more are requesting it.
  • Examples of states with SCS include Jammu and Kashmir (currently union territories), Assam, and Nagaland.
• Benefits of SCS
  • States with SCS receive preferential treatment, including exemptions from customs duty, corporate tax, income tax, and other taxes to attract investment.
  • Additionally, unspent funds in a financial year do not lapse but carry forward to the next year.
• Challenges and Debates
  • While SCS provides advantages, there have been debates about its effectiveness and whether it truly addresses the developmental needs of these states.
  • Some argue that a more holistic approach is necessary for equitable growth across all regions.

Why are Andhra Pradesh and Bihar demanding Special Category Status?

Way Forward

• Balancing regional development remains a challenge.
• Policymakers must continually evaluate the impact of SCS and explore alternative strategies for inclusive growth.
• In summary, SCS aims to provide central assistance and tax breaks to underprivileged states, promoting uniform growth and equality.

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